Canadian economic accounts

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Real gross domestic product (GDP) edged down 0.1% in the first quarter of 2008, its first quarterly decline since the second quarter of 2003. The economy, which had started to lose momentum in the second half of 2007 as exports declined, stalled in the first quarter due to widespread cutbacks in manufacturing, most notably in motor vehicles. In addition, weather disruptions hampered economic activity in the quarter. Economic output contracted 0.2% in March. Final domestic demand advanced 0.6% in the quarter on the strength of consumer spending. Inventory accumulation eased considerably in the first quarter, after two quarters of large build-ups.

A more detailed analysis is available in Canadian Economic Accounts Quarterly Review.

Since late 2007, there were efforts to reduce motor vehicle inventories in Canada using incentives. At the same time, producers were retooling model lines due to changing demand and they were also hampered by a strike at a major supplier of automotive parts. Excluding the production of motor vehicles and its estimated ripple effects on other sectors such as motor vehicle parts, wholesaling and transportation, GDP for the remainder of the economy grew by 0.1% in the quarter.

The output of the goods-producing industries declined 1.5% in the first quarter, while the services-producing industries advanced 0.5%. Declines in manufacturing, mining and some transportation industries were partially offset by increases in retail trade, accommodation services, and finance and insurance.

While the economy continued to create jobs in the first quarter, average hours worked declined. Inclement weather hindered average hours worked in some industries.

The Canadian economy declined at an annualized rate of 0.3% in the first quarter, compared with 0.9% growth for the US economy.

Exports fall

Exports of goods and services fell for the third consecutive quarter, in line with the third consecutive decline in manufacturing output. The 1.1% decline in the first quarter of 2008 stemmed from a sharp decrease in exports of automotive products, as Canadian manufacturers were hampered by a strike at a major supplier of automotive parts in the United States.

Excluding automotive products, exports grew 0.8% in the first quarter. Sales of forestry products abroad declined for a third consecutive quarter, as weakness in the US housing market continued.

Exports of services registered a 2.3% drop, largely due to lower exports of commercial services. Conversely, energy products, with the exception of natural gas, recorded a strong gain in the quarter, reversing the weakness recorded in the last half of 2007.

Imports declined for the first time since the fourth quarter of 2006. The decrease was widespread. Automotive products pulled imports downward, corresponding to a drop in motor vehicle inventories. Purchases of other consumer goods from abroad also lost ground. Machinery and equipment imports retreated after three quarters of substantial increases.

Business investment slows

Growth in business investment in machinery and equipment decelerated to 0.3% in the first quarter, moderated by a downturn in industrial machinery investment. This followed three quarters of gains averaging 3.3%. Increases in investment were registered for automobiles and other transportation equipment. Business investment in machinery and equipment has increased more by than 60% since the fourth quarter of 2002, in conjunction with the appreciation of the Canadian dollar.

A pickup in business investment in non-residential structures in the first quarter (+0.9%) was the result of increases in investment in both buildings and engineering. Total business investment in plant and equipment grew 0.6% in the quarter.

Inventory accumulation eases

Inventory accumulation eased considerably in the first quarter, after two quarters of large build-ups. The change was most notable for motor vehicle dealers, who significantly reduced their stocks. This accounted for one-third of the difference in total inventory accumulation between the fourth quarter of 2007 and the first quarter of 2008.

Manufacturers and wholesalers reduced their inventories, particularly of durable goods, while retail inventories increased marginally.

Businesses have been accumulating inventories since the third quarter of 2004. The economy-wide inventory-to-sales ratio remained unchanged in the first quarter of 2008, leaving sufficient inventories to satisfy 63 days of sales.

Personal spending moderates

Personal spending grew 0.8% in the first quarter, down from the 1.8% gain in the fourth quarter of 2007. The deceleration was largely due to lower expenditures related to travel abroad, which increased substantially in the last half of 2007. Despite the decline, expenditures related to travel abroad registered their second-highest level ever. Purchases of new and used motor vehicles advanced 7.2%, spurred by widespread sales incentives, low interest financing packages, and the Goods and Services Tax rate reduction. It was the largest gain since the fourth quarter of 2001.

Housing investment declines

Business investment in residential structures declined in the first quarter, following five quarters of growth. Transfer costs associated with the resale market decreased for a third consecutive quarter, and new housing construction declined. This was partially offset by an increase in renovation activity.

Corporate profits advance

Corporate profits grew 2.4% in the first quarter, fuelled by energy sector earnings.

Wages and salaries and supplementary labour income increased 1.5%, a deceleration from the previous quarter.

Prices move upward

The price of goods and services produced in Canada advanced 1.3% in the first quarter, boosted by the continued increase in energy prices. This was up from the 0.9% increase registered in the fourth quarter. Excluding energy, prices advanced only 0.2%. Export prices, reflecting the energy gains, advanced sharply (+5.4%). After three quarters of declines, import prices advanced 3.3% as the Canadian dollar depreciated against its US counterpart. Prices for final domestic demand increased 0.5%.

Household debt in the form of mortgages and consumer credit edged up. Households carried $1.16 of debt for every dollar of personal disposable income. Debt servicing charges remained unchanged at about 8% of personal disposable income.

Gross domestic product by industry, March 2008

Economic activity edged down for a second consecutive month, declining 0.2% in March. The goods-producing industries fell by 1.0% while the services-producing industries expanded by 0.2%.

The 2.5% drop in manufacturing value added accounted for almost all of the decrease in the goods industries. The declines in manufacturing were widespread, but motor vehicle and parts production were the hardest hit, accounting for about 40% of the decline in manufacturing. Lower demand and a strike at a major parts supplier located in the United States rippled through the motor vehicle and associated industries.

In March, production of wood, paper, and non-metallic minerals also fell as demand on foreign markets continued to soften.

Construction activity decreased 0.2% in March. The declines in residential construction, and engineering and repair work, were only partially offset by an increase in non-residential building.

The energy sector moved ahead 0.3%, with increases in oil and gas production and natural gas distribution. Support activities for mining and oil and gas extraction contracted 4.0%.

Within the services sector, activities in the finance and insurance industries rose 0.8%, largely on the strength of very strong trading volumes on the stock exchanges. However, banking services were almost unchanged.

Real estate agents and brokers recorded a fourth consecutive monthly decline as the home resale market retreated slightly in March. Their activities were among those which were affected by the inclement weather.

Wholesaling activity fell for a second month in a row (-0.6%), while the retail trade sector was up 0.2% in March, recovering part of its February drop.

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Detailed analysis and tables

The National economic accounts module, accessible from the home page of our website, features an up-to-date portrait of national and provincial economies and their structure.

More detailed analysis on today's releases from the national accounts, including additional charts and tables, can be found in the first quarter 2008 issue of Canadian Economic Accounts Quarterly Review, Vol. 7, no. 1 (13-010-XWE, free) from the Publications module of our website.

Gross domestic product by industry

The March 2008 issue of Gross Domestic Product by Industry, Vol. 22, no. 3 (15-001-XWE, free), is now available from the Publications module of our website.

For general information or to order data, contact our dissemination officer (toll-free 1-800-887-4623; iad-info-dci@statcan.gc.ca). To enquire about the concepts, methods or data quality of this release, contact Bernard Lefrançois (613-951-3622), Industry Accounts Division.

Available on CANSIM: table 379-0027.

Definitions, data sources and methods: survey numbers, including related surveys, 1301, 1804, 1901 and 2602.

National economic and financial accounts

Available on CANSIM: tables 026-0009, 378-0001, 378-0002, 380-0001 to 380-0017, 380-0019 to 380-0035, 380-0056, 380-0059, 380-0060 and 382-0006.

The first quarter 2008 issue of National Income and Expenditure Accounts, Quarterly Estimates (13-001-XIB, free) will soon be available.

Detailed printed tables of unadjusted and seasonally adjusted quarterly National Income and Expenditure Accounts (13-001-PPB, $54/$193), Financial Flow Accounts (13-014-PPB, $54/$193) and Estimates of Labour Income (13F0016XPB, $22/$70), including supplementary analytical tables and charts are now available. To purchase any of these products, contact Client Services (613-951-3810; iead-info-dcrd@statcan.gc.ca), Income and Expenditure Accounts Division.

The complete seasonally adjusted quarterly National Income and Expenditure Accounts: Data Tables (13-019-XWE, free), Financial Flow Accounts: Data Tables (13-020-XWE, free), and monthly Estimates of Labour Income: Data Tables (13-021-XWE, free) are also now available from the Publications module of our website.

For more information, or to enquire about the concepts, methods or data quality of this release, contact the information officer (613-951-3640, iead-info-dcrd@statcan.gc.ca), Income and Expenditure Accounts Division.

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